5.9 Conclusion with regard to the VAT treatment of leapfrog cash back and money off schemes

In this Chapter (in Sections 5.5, 5.6, 5.7 and 5.8) I have elaborated on the need of a proper VAT treatment of scenario’s where a business (partially) funds a transaction further down the distribution chain regarding his own product, where, form a legal perspective, he is not party to the agreement regarding the supply/purchase of that good. The fact that, for this business, funding that transaction through either a cash back or a money off scheme is the only way to assure that he can decrease the price of a product for the purchaser that he wishes to attract (by making his product more attractive, compared to similar products), makes that this funding is a proper business expenditure and that this payment should affect the VAT position of the business making it. If the funding business would be able to grant the same discount amount directly, i.e. to its own customer, his VAT position would, after all, be affected as well.

I have also demonstrated that, due to the nature of this ‘leapfrog funding’, the payment cannot be considered a true ‘discount’ for VAT purposes, and it isn’t a proper ‘third-party payment’ in the VAT sense either. This means that the solution to this VAT issue that the CJEU came up with to adjust the bottom-line VAT position of the business funding the transaction is, in my view, not the best solution. The solution suggested by the European Commission in its proposal for adjustments to the EU VAT Directive is, in my view, not the best solution either.

The outcome of the CJEU’s solution is based on the principle of neutrality and on the ‘economic and commercial’ reality that a business making a (VAT inclusive) payment for the purpose of his business (by, ultimately, receiving less for his original supply), and VAT is only charged on the actual consideration paid by the final consumer. Using ‘the purpose of EU VAT’ and ‘economic and commercial reality’ from my research framework as tests, I can only come to the conclusion that the CJEU’s solution is in line with desirable or appropriate law. However, as I demonstrated in Sections 5.4 to 5.8, the CJEU’s solution deviates from what is actually written in the EU VAT Directive that I am of the view that a better solution is needed.

In Section 5.8, I have explained why, in my view, a system of ‘shared payment and joint deduction’ would be the best solution to the VAT issues surrounding cash backs and money offs. The issues that remained unsolved or that were created by the existing and/or other suggested solutions are all resolved under this system.